Trading With Median Lines

Mapping The Markets

By Timothy Morge
Trading With Median Lines

Mapping The Markets

By Timothy Morge
Copyright © 2003 Timothy Morge All Rights Reserved

ISBN # 0-9729829-0-6
First Ed ition

Published by:

1870 Diamond Creek Lane

Blackthorne Capital, Inc.

Aurora, IL 60504
United States of America

1
 WARNING AND DISCLAIMER

No claim is made that the trading methods or ides presented in this book will translate into
trading profits. The contents of this book cannot be guaranteed to produce profits. Commodity
futures or stock trading is risky by nature and may not be suitable for those that choose to buy
and or read this book. Although the author has found the techniques presented in this book to be
reliable in the past, there is no guarantee by the book's author or the book's distributors that
these techniques will work in the future. Each trader is responsible for his or her own actions in
life and in the markets. The contents of this book are not, nor should they be considered to be an
offer to buy or sell any commodity or futures contract or stock. Purchase of this book constitutes
your agreement to this disclaimer and exempts its author and distributors from any liability or
litigation. Further, opening and reading this book constitutes your agreement to this disclaimer
and exempts its author and distributors from any liability or litigation, though you may be
prosecuted if you obtained this book illegally.

Copyright notice:
No part of this book may be reproduced without the written permission from the publisher. No
part of this book may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means, photocopying, electronic, mechanical, or otherwise, without the prior written
permission of the publisher.

ii
iii
This trading manual is dedicated to the people in my life that made me the person I am:

Ben introduced me to the world of trading and technical analysis. To this day, I have never seen a more
complete trading library. He introduced me to original manuscripts, charts and letters by such greats as
Andrews, Babson, Elliott, Gann and Marechal, as well as all the classic books on trading and technical analysis
from the "Golden Age of Technical Analysis." Wherever he's resting now, I am sure he is having the time of his
life squeezing the copper markets.

George Egan hired me to learn to trade currencies. He told me: "Just look for the dollar bills on the ground and
pick them up. When you begin to see the five and ten dollar bills, don't get so lazy that you forget to pick up the
dollar bills."

Jim McNulty gave me my first currency limits to trade the Belgian Franc. He was generous with his contacts and
when I performed, he was quick to give me more rope. He's the funniest trader I ever met and he's not a bad
rock and roller, no matter what Bill Murray claims!

Dave Harvey hired me to manage a trading desk and later gave me larger and larger portfolios to manage. One
of my fondest trading memories cC!me when Dave and I sat on the floor, laughing until we cried about a yen
position one very late night. He's a good man with a good heart that I will always love.

Dave Vitale always repaid hard work and results with increased responsibility. He valued loyalty and repaid it in
full. When I was in a losing streak and worried about losing more money, he told me: "I gave you the rope. If you
see a trade, take it. I'll tell you when you've hung yourself."

The hundreds [it's well over a thousand now, actually!] members at the MedianLine web forum have been
indispensable with the creation of this work. They have been critical and patient and impatient and supportive.
They have shared their own techniques within the group and I can honestly say no better trading forum exists on
the internet.

iv
Mike Aufmann was my first broker when I began trading at Harris Bank in 1980. In a business filled with people
mostly interested in furthering their career and feathering their own pockets, Mike has always been a
consummate professional and gentleman. He values loyalty and professional courtesies. He is my closest friend
in this business and I love him like a brother. I wish we saw more of each other, but that also is the nature of this
business.

My father told me: "Be a good man and try your best, son. That's all you can do in life." He valued honest hard
work and loyalty above all else and he was the hardest working man I've ever met. I didn't get to know him as a
friend until we were both deathly ill and went fishing together in Florida. He became one of my best friends on
that trip and there isn't a day now that I don't miss him dearly.

My mother raised a family of eight children by herself, because my father was working twenty hours a day. She'd
tell me: "We just get it done, son, because we have to get it done. That's how life works." She always let me find
something new and exciting to explore. If we imagined it, she believed we could do it. At 85, she has more
energy than I do on my best day. I love her with my whole heart and my two children are lucky to grow up
knowing such a wonderful grandmother.

My two children, Sean and Lucy, help me put little things like trading into perspective. If I've had a bad day
trading, they still love me. If I've had a great day trading, I'm still their dad that forgot they wanted to go bike
riding. They are happy and inquisitive and I know they have good hearts. I hope they both enjoy life and find a
passion that drives them.

Jeanne, my wife, has always stood by me. I knew she was something special when I first met her. We decided
to get married on our first date. When I was deathly ill, she held my hand and gave me her strength. When
business got tough, she supported me and never blinked an eye. We've been together twenty years now. When
my days are over, I hope she feels she picked the right man. "Love is all you need... "

v
This book would not have been possible without ...

The archivists at Babson College, The Chicago Board of Trade, The Chicago
Mercantile Exchange, Harvard University, The Massachusetts Institute of Technology
and The University of Chicago: They were all a joy to work with.

The trading manuscripts, charts and letters contained in three private collections I
have been privileged to view and use: To these three families, all of which wish to
remain anonymous, I give my unconditional thanks.

Roger Babson: A great man interested in helping his fellow man.

Alan Andrews: A great teacher, willing to help all that asked.

George Marechal: An original thinker and a market genius.

vi
Table of Contents
1. Introduction Page 1
2. �edian Lines ������� Page 13
3. Schiff �edian Lines Page 25
4. Inside �edian Lines Page 33

6.
5. Gap �edian Lines Page 45
Trade Examples: Using �edian Lines Page 51
7. Warning Lines Page 105
8. Sliding Parallel Lines Page 109
9. Lines of Force: Proving the 80 Percent Rule Page 117
10. The Trend Test Barrier Page 131
11. Using the 0-4 Pivot Count to Anticipate �arket �oves Page 137
12. Trade Examples: Combining the Count and �edian Lines Page 151

vii
Trading With Median Lines

Mapping The Markets

viii
 Introduction

I have been trading commodities since the mid 1 970's. At that time, computers were cumbersome
machines locked away in huge ventilated rooms in Un iversities and Corporations. Most people didn 't
know mu ch abou t them. The few people that had access to compu ters en tered their q uestion s by
pun ching holes in thick paper cards and then waited while the computer chu rned and churned and then
displayed their answer on a small green florescent screen . Computers were n ot u sed for graphing
commodity charts or creating indicators for trading.

Commodity charting was done by hand. Or if you lived in Chicago or N ew York, you cou ld bu y a 'chart
book' that came ou t weekly after Friday's close; if you lived elsewhere, your copy arrived in the mail
sometime Monday. Either way, you u pdated you r charts u sing en d of day data. The on ly 'live' real-time
prices available in Chicago were the regu lar u pdates on Chicago's chann el 26, which carried intraday
commodity shows sponsored by commodity brokers, or the regu lar agricu lture q uotes carried by WGN
radio, which catered to all the farmers that were interested in hedging their hog or corn crops.

I f you wanted to learn about trading, you went to one of the bookstores by the Chicago Mercantile
Exchange or the Chicago B oard of Trade. Or you went to Krochs an d Brentanos main store u n der the
train tracks in downtown Chicago. Then you had to choose between books like "New Methods for
Profit in the Stock Market," by Garfield Drew or "Stock Market Profits," by Richard Schabacker or
"George Wollsten: Expert Stock Trader." I f you du g a little deeper, you might find have fou n d the
man y works by W. D. Gann or a book or two written by his disciples. You might have a book or two
devoted to R. N . Elliott's theory.

1
I f you knew someon e that traded for a livin g, they might have been willing to sell or loan you a
mimeographed copy of The Wetsel Market Bureau's "A Course in Trading." And if you were really
lu cky, you might have known someon e that su bscribed to the weekly n ewsletter published by Dr. Alan
An drews or even get a secon d-hand copy of "The Fou ndation For Economic Stabilization Cou rse" he
published. Some of the pit traders in Chicago and N ew York flew down to Miami to learn directly from Dr.
Andrews, so his work was well known within the close-knit pit trading circles.

Dr. An drews came from a tradin g family. His father owned a brokerage hou se an d traded for clients and
his own accou n t. The Andrews investmen t firm handled accou n ts for the Kenn edy family and made them
quite a large sum du rin g and after the Great Depression. He sent his son, Alan , to en gineering school at
M. I .T. , and on ce Alan gradu ated, he told him it was "time to make some mon ey. " He challenged the
you nger Andrews to make one million dollars in one year, a task that he would n ot accomplish. I t took
him just over two years to make his first million dollars trading commodities!

Alan Andrews loved to learn and he attended many trading seminars or "social gatherings" as they were
called. These were literally social events, where you were extended an invitation and after a speaker
had given his presentation , refreshments were served and contacts were made. Dr. Andrews attended
Roger B abson's first "social gathering" an d the two were good friends from that point forward. Later, at a
"social gathering" hosted by Dr. Andrews, finan cial author Garfield Drew introdu ced George Marechal to
Dr. Andrews, and so another good friendship was formed.

2
 Roger Babson and George Marechal

Roger B abson devoted a major part of his life studyin g the works of Sir I saac N ewton , particularly those
relating to his third law of motion , "For every action, there is an eq ual and opposite reaction . " Accordin g
to Dr. Andrews:

"Th is Rule was first applied to price trend changes by the late Roger Babson . He adapted it to price movements
from Sir Isaac Newton's scientific law that states "Action and Reaction are equal and opposite". He stated that h is
fortu ne of over $50,000,000 was due to this pri nciple. I n gratitude to Newton, he established the Gravity Research
Foundation now located at New Boston, N . H . , and went to England where he was able to buy Newton's former
home. He then transported the study where Newton made h is d iscoveries to the Babson Business Institute, and
you may visit and sit in the this beautifully paneled room at Wellesley Hills in Babson Park. The writer, you r director
was presented with some apples and said to the descendents of the apple tree that Newton is said to have been
sitting u nder when the fall of an apple started h is train of thought lead ing to the important laws that he developed ,
relative to g ravitation ."

Original Action-Reaction Course By Dr. Alan Andrews

After working for several East Coast in vestment firms, B abson decided there was a real n eed for
accurate and useful investment information and business condition s. I n 1 90 4, he founded the B abson's
Statistical Organization [N ow known as B abson-United, I nc.] . This research organization revolution ized
the finan cial services industry and B abson literally took in millions of dollars in reven ues from this
undertaking in the company's first decade.

And this brings us to the humble beginnin gs of the Median Line. I n his own words, Roger B abson writes
about these events:

3
 "My business friends of those days were partners in Stock Exchange firms and investment houses. Nearly all of
these men believed that the United States had entered a period of al most boundless prosperity. None of them saw
any clouds in the sky . . . On March 6, 1 907, there started a crash which finally brought stocks from their h igh point of
1 1 1 to a low point of 60 . . . This caused me to make a study of the losses which come through Stock Exchange
transactions and foolish investments. I estimated these to be in excess of one and a half billion dollars a year.. I
decided to do something to prevent them."

I n a book entitled "Benn er's Prophecies of Future Ups and Downs in Prices, " Babson was en amored by
the a technique for predicting future stock market movements and business conditions based on the
average price of pig iron , hogs and corn . He was particularly fond of the followin g quote:

"There is a time in the price of certain products and commodities,

Which, if taken by men at the advance, leads on to fortune;
But if taken at the decline, leads to bankruptcy and ruin."

He took the book, along with other related materials, to Professor George F . Swain , Head of Civil
Engineering at M. I .T. and accordin g to B abson:

"We both concluded that there was something in the idea which these books portrayed . . . It was Professor Swain
who first drew a "normal l ine" through these zigzag charts which we had made and through the composite chart
which included them all. Professor Swain also suggested that Newton's Law of Action and Reaction may apply to
economics as it does to physics, chemistry, astronomy, and other fields. Other systems of forecasting considered
only the h igh and low of the charts, while ou r system considered the areas of the charts. Based on Newton's Law of
Action and Reaction , we assu med that after a depression area, equal in area to the preced ing area of prosperity,
had developed , another period of prosperity would be due. I n making these stud ies, we took cognizance primarily
of the shape of the areas. For instance, an area might be deep i n intensity and short in duration, or shallow in
intensity and long in duration . I n both cases the square millimeters should be about equal. I n the former case we
would forecast a short depression , while in the latter we would forecast a long depression.

4
After a cycle is completed , we draw a line through the cycle to make the area below equal the precedi ng area

follow Newton's Law of Action and Reaction. After a line is once drawn for a single cycle showing the completion of
above. Thus, 0- equals 0, E- equals E, F-equals F, etc. , up through the last completed cycle. I n doing this we

a cycle, it should be drawn for all time. The extreme right of this line gives an axis for a line or arm for the following
cycle. Thus, this projected arm is shown as a dotted line in connection with the last cycle. When we believe the
cycle is completed , we move this dotted line up or down on the axis to make the areas balance. Then we consider
the cycle as fixed , and the dotted l ine is made a solid line and remains fixed . We then go ahead with a new dotted
line from the new axis, developing the next cycle.

These arms form what is known as the Normal Line, or the X-V Line, as it is called in mathematics. The areas
above this Normal Line are known as areas of prosperity. The areas below the Normal Line are known as periods
of depression . As stated above, the Law of Action and Reaction is assu med in making the areas equal in order to
fix the Normal Line; but the Normal Line is always carried along in the same general d irection . This enables
business men and investors very closely to forecast how long a period of depression will last.

Based on this same Law of Action and Reaction, one may assu me safely that a period of abnormal depression
always follows a period of abnormal prosperity . . . [and] after an abnormal depression the country wil l again enter a
period of prosperity and a black area will again appear above this Normal Line. Remember, however (which is very
important), that it is the areas which tend to balance, rather than the h igh or low points. This means that the steeper
the decline and the deeper the area , the shorter wil l be its duration and the more rapid will be its rebound, and vice
versa . The Babsonchart, as above stated , is u sed as a basis for determining when to buy and when to sell . "

Selections from "Actions and Reactions: An Autobiography of Roger Babson"

5
 PHYSICAL VOLUME
OF BUSINESS

A B abson chart from the 1 930' s demon strates Babson's use of a N ormal Lin e and Volume Areas.

6
At another gatherin g, Alan Andrews met George Marechal, another East Coast speculator. Like Roger
B abson , Marechal is well known for a market prediction he made in the early 1 930's. George Marechal
copyrighted the following chart:

"'O�,[CA5T ro� 1�']4 - 1948 I"t:.RIO[)

.1'.$ PR,tPARtO �(�(h<l6ER. 1�.J3

115

I�O

OOw- JONt:!> 1p,/D!.J$TRI.... r.. ....EftAGr.

..
C�1'\IIoRAnL,[ PR1CC R....NGE!> 100
I'QR TWO- MQNrl-t �1ol1005.

7
 "Marechal , by mathematical methods of his own , was the first to demonstrate that there is order underlying the so­
called random changes in price fluctuations. No professor at any u niversity, no government economists, have ever
been able to produce a similar chart showing , as Marechal's famous chart, copyrighted in advance, what the Dow
Jones I ndustrial stock averages would do 1 5 years ahead . As one of many other samples of this mathematical
orderliness regulating the flow of stock prices, the writer received from this remarkable man , now approaching 90,
several months before President Nixon's election, an accurate prognostication of what the D.J. I ndustrial Average
wou ld do the day after N ixon's election."

I t's clear Dr. Andrews had a close relationship with George Marechal and further, he had enormous
respect for his work. There are some that believe that Marechal may have played a large part in the
origin ation of the Median Line. Though I have seen some of George Marechal's work preserved in a few
private collections, on ly the above chart is available to the public. Dr. Andrews further states:

"Of the two kinds of change in the Universe, flowing change and random change, we are indebted to Newton's
invention of the Calculus that enables us to find out in advance the conditions that flowing change wil l produce in
the future . . . This method is superior to the Moving Average Method of recognizing trends . . . "

Alan H. Andrews, Director-The Foundation For Economic Stabilization, Boston, MA-1969

I n effect, the Median Line brin gs together the work of four great minds: N ewton , B abson , Andrews and
Marechal. N ow let's ask the obvious q uestion : What are Median Lines?

When a transaction takes place at a particular price, it really happens at the equilibrium price, mean ing
the price where, for that brief momen t in time, the n et buyin g interest meets the n et selling interest. And
the buyin g and selling interests represent literally thousands of things: All the prices of all the items that
went into the production of an item, all the items that go into the amount of demand for the item, the
number of the same or similar items available-I n fact, it wouldn 't be overstating the case to say that the

8
inputs into characterizing the equilibrium price are n early infinite, yet an equilibrium price is reached or
there would be n o tran saction .

Working with these charts, An drews [and perhaps Marechal] soon abandon ed the con cept of using the
volume above an d below the N ormal Line as a m ethod of predicting future m ovements. Andrews didn 't
discard B abson's work entirely, however. I nstead of using the average price of a group of commodities
as the N ormal Line, he chose to use the relation ship between three prior pivots to generate a Median
Line, a line that price should reach 80 percent of the time. N ow he was no longer working with the
volumes above or below a m oving average [Babson's N ormal Lines] but instead, was able to project
lines that predicted prices. The higher levels of mathematics and statistics are then reduced to the
choosing of three altern ating pivots and then drawing lin es to project price's likely path. The Median Line
projects forward into space and time the summed effects of the forces acting on price at these three
turning points.

Back to the Futures: 2003

Fast forward to 2003: Real-time tick data streams into the homes of most traders. Literally all traders
have powerful computers sitting on their desk. All these traders watch real-time updating in traday charts.
The simple techniques pioneered and used so effectively in the Golden Era of Technical Analysis have
been passed over for the use of complex indicators and systems. How can something so simple,
something that can be hand drawn with a few pen cil strokes possibly compete with computer-generated
indicators?

Ican only share with you what I know about these simple an d effective tools. I , too, have powerful
computers and real-time data feeds. But since I was first exposed to the origin al Action-Reaction course

9
materials in the early 1 980's, I have foun d Median Lines to be the single most powerful tool in my tradin g
tool kit. I have main tained close relation ships with other students of Dr. Andrews, as well as those that
have taken these simple tools an d remade them to fit their own style of trading. Make no mistake: I n this
book, I am showin g you how I use Median Lines. I have been an active profession al trader for n early
thirty years and these are the tools I use every day in my own tradin g. And I have done my best here to
show you how I use them. This book is filled with charts, because Median Lin es are best learned by
seein g chart after chart, an d then by drawin g chart after chart.

The materials presen ted in this volume are mean t to be basic an d in some aspects, repetitive. I t is my
intent to present several further volumes that delve deeper in to the intricacies of using these techniq ues
in everyday tradin g. I f you are interested in further information regardin g these tools, I urge you to visit
the Median Line website at www . median lin e. com. You'll find free charts and information on how you can
join our on-goin g free forum, dedicated to the discussion of these powerful yet simple tradin g tools.

Timothy Morge
October, 2003

10
11
12
 Trading With Median Lines: Drawing Median Lines

We'll be d rawing fou r distinct types of Med ian Lines in this book:

1 . Traditional Med ian Lines. Most charting packages include these and when most traders refer to Median Lines or
MLs or pitchforks, they mean this specific type of Med ian Line [Yes, the original Med ian Line] .
2. Schiff Med ian Lines. Those that did not do their homework have called these "mod ified" or "average" Med ian Lines.
There are actually two types of Schiff Med ian Lines [we'll d iagram both] , but 90 percent of the time, the "Modified
Schiff' is the Schiff Median Line of choice.
3. I nside Med ian Lines or Reverse Med ian Lines. They use the mid-point of a swing rather than an actual pivot point
when d rawing this type of Median Line.
4. Gap Med ian Lines. The name says it all: A h igh or low of an open gap i n price is used as one or two of the pivots
when d rawing a Med ian Line.

Drawing a trad itional Med ian Line is qu ite simple:

1 . Pick three alternating pivots: A h igh Pivot followed by a low Pivot followed by another high Pivot; or A low Pivot
followed by a h igh Pivot followed by another low Pivot. I like to label them "A" "8" and "C."

2. Draw a l ine from Pivot " 8 " to Pivot "C."

3. Find the center or mid-point of the line connecting Pivot "8" to Pivot "C."

4. Connect a l ine from Pivot "A" to the center or mid-point of the line connecting Pivot "8" to Pivot "C." Then extend
this l ine forward , out i nto space and time. This is the M ed ian Line.

Let's see how that looks on some charts:

13
 tl ft n trlr �1400.00
-

tl rtf tl
:-1350.00
-

lttr��r�/r\
�1300.00
-

:-1250.00

tr� B
-

��tt� tr�tt� t
:-1200.00
-

i It
:-1 150.00

A
-

C
:-1100.00
- - .= '
�-' -� -- -

Prices have been in a nice down tren d for over two months. On March 22, price makes a large spike
lower but then man ages to close in the upper third of the day's range. Prices are again stron g for the
n ext three days, an d then they con solidate for four days before tradin g lower for two days. N ote that
price does not make a n ew low.

When price gaps open higher the n ext day, I draw in three pivot points: A, 8 an d C.

14
 �1350.00

�1300.00

�1250.00

�1200.00

�1 150.00

�1 100.00

- - - - - --. .- -

I draw a line between points B an d C . Then I find the mid-poin t, or cen ter, of that line and mark it.

15
 :-1250.00

�1200.00

:....1 150.00

�1 100.00

:-1050.00

�1000.00

:-950.00

space; in effect, this line is drawn or projected forward in price and time.
N ow I draw a lin e from poin t A through the mid-point or cen ter of lin e 8-C and project it forward, out in

16
This first line is a Median Line. I t describes a path projected out in space or out in price and time. The
Median Line projects a certain velocity and momentum in its slope. For simplicity, I say the Median Line
carries a specific frequency imparted by the relation ship between its three pivots.

17
 �1350.00

�1300.00

:-1250.00

�1200.00

:-1150.00

A c
�1 100.00

: 1050.00 I

N ow let's see if the freq uency carried by the Median Lin e helps it describe the probable path of price out
forward in time.

18
 H rrtr �1 400.00

r tl
�1350.00

t� r l
V\� / :-1300.00

�1250.00

lr��ul B
:-1200.00

t{ �1 150.00

A c
:"1 100.00

I draw in a pair of lines parallel with the Median Line [ML for short] . These lines carry the same
freq uency as the Median Line but they are displaced out in space so that their starting points are the
origin al pivots, B and C . These two lines are called Median Line Parallels [MLH for short] .

19
 �H.� -1550.00
B

� tv fl�� � -1500.00

t t �l -1 450.00

A
t�r � -1 400.00

time passes. Prices make it to the Median Line 80 percent of the time.
The Median Lin e [and to a lesser extent the Median Lin e Parallels] gives us the probable path of price as

20
Here is another example of using the freq uen cies from three pivots to project their velocity and
momentum forward into space [time an d price] . Remember that Action and Reaction both play key roles
in movement. Pivots drawn in a down trend carry velocity and momentum that can translate well in to
down ward OR upward movements.

21
 -1550.00
B

-1500.00

-1 450.00

A
-1 400.00

I draw a line between pivots B an d C , an d then I fin d the mid-poin t of that lin e. I draw a line from pivot A
through the mid-poin t of lin e B-C, out into price an d time.

22
 Upper MlH -1550.00
B

Median line [Ml] -1500.00

-1 450.00

lower MlH

-1 400.00

I add in an d label the two Median Lin e Parallels, the Upper and Lower MLH.

23
 -1550.00
B

ft� -1500.00

�
w� -1 450.00

A
�, -1400.00

I 'fast forwarded' in time a bit to show you how the n ew Median Lin e described price.

24
 The Schiff Median Line

Dr. Andrews always en couraged his students to adapt his techniques to their own style of trading. The
origin al Action-Reaction course is filled with examples of techniques developed by his students. One
adaptation , the Schiff Median Line, is extremely useful in certain market conditions. I find it useful when
the market has been trading in a coil formation or range. I t is also a great tool to use when price "creeps
to the right" of the tradition al Median Line Parallel when you can't find another set of pivots to use.

Jerome Schiff was a N ew York floor trader and a long-time friend and student of Dr. Andrews. He would
often be found at Dr. Andrews seminars.

There has been some confusion about Schiff Median Lines. When you see people referring to "50
Percent" Median Lines or "Modified" Median Lines, they are referring to Schiff Median Lines. And the
accurate n ame for the S chiff Median Line presented here is probably the "Modified S chiff' Median Line,
because Jerry Schiff presen ted a n ew way of drawing Median Lines to Dr. Andrews and after a bit of
studying, Dr. Andrews began teaching a modified version of that origin al Schiff Median Line. Though we
know how to draw Jerry Schiff's origin al "Schiff Median Line, " the one presen ted here is the Schiff
Median Line that Dr. Andrews taught in his course and at his semin ars. And the Schiff Median Lin e
presented here is the Schiff Median Lin e available on some charting packages. I n one of the advan ced
volumes, I 'll detail the various Schiff Median Line variants and how each can be used.

25
 :-940.00

:-930.00

�920.00

:-910.00

:-900.00

�890.00

:-880.00

IFeb

Price has been in a stron g up tren d. I t has n ow tested the Upper MLH and price is congestin g: N ote that
the high at A is followed by a lower high, C , and that the low at B has been followed by a lower low.
Once price forms two lower pivots, I label the pivots. I conn ect B an d C and find the mid-poin t. Then I
draw a traditional Median Lin e. I add in the Median Lin e Parallels [Upper an d Lower MLH].

26
 :-940.00

:-930.00

:-920.00

:-910.00

:"'900.00

:-890.00

:...880.00

:-870.00

IFeb

I t doesn't take lon g for price to show me that this tradition al Median Line isn 't 'describing' price. The
down angle formed by the three pivots I chose was so steep, price would have to be in a free fall to stay
within the Median Lin e Parallels for any amount of time. I 'll erase the lin es an d start over.

27
 ;-'940.00

:-930.00

;-'920.00

;-'9 10.00

;-'900.00

;-'890.00

:-880.00

;-'870.00

I con n ect B an d C , exactly the same way I do when drawin g a tradition al Median Line. Then I fin d the
mid-point of that lin e, just as before.

N ow I draw a secon d lin e, conn ectin g point A and point B. I find the mid-point of that line an d mark it.

28
 c
:-940.00

:"'930.00

:-920.00

B :-910.00

�900.00

�890.00

:-880.00

:-810.00

I draw a line from the mid-point of Line A-8through the mid-point of 8-C out into price an d time. This is
the Schiff Median Line.

29
 :-940.00

:-930.00

:-920.00

:-910.00

:-900.00

:-890.00

:-880.00

:-870.00

I draw lines parallel to the Schiff Median Line that begin at poin ts B an d C to form the Upper and Lower
Schiff Median Lin e Parallels [MLH].

30
 �940.00

:-930.00
Schiff Median Line
�920.00

�910.00

:"900.00

:"890.00

Traditional Median line :-880.00

�870.00

I added a "n ormal" Median Line an d the Median Line Parallels using the same pivots. N ow you can
plain ly see how offsetting the begin nin g of the Median Lin e can change the dyn amics of the ML set.

31
 :-960.00

:-950.00

:-940.00

:-930.00

�920.00

:-910.00

:-900.00

:-890.00

:-880.00

I 'fast forwarded' in time a bit to show you how the n ew Schiff Median Lin e described price.

32
 Inside Median Lines

There are times when you can n ot find a traditional Median Line set that describes price. What do I mean
by that? When prices make a spike bottom or a "V" bottom, leaving n o pivots other than the bottom pivot
for q uite some time on the way down , it can be difficult to find pivots that form useful Median Lines. Or
when prices gap open on the day, leave the gap open and close without filling this gap, especially at the
run to n ew highs or lows for a move, you may have trouble selecting meaningful pivots. I nside Median
Lines are one tool that can be used in these and other instances when you cann ot find meaningful pivot
relationships to use.

I n general, I prefer I nside Median Lines to either touch the Upper or Lower Median Line Parallels when I
first draw them or I prefer to wait until they are tested by price before relyin g on them. They CAN carry
frequencies in the same way that other Median Lines carry frequen cies, but it is much easier to choose a
meaningless set of pivots when drawing I nside Median Lines. I n other words, use them, but use them
with a touch of cynicism. Make price respect the I n side Median Line set before trustin g it completely.

33
 C
A �
tn
-

t�
-1225.00

tt �l
t � t I .;E

tlHlt(�
Higher High -

:"'1220.00

\
Higher Low

�
:"' 1215.00
B Higher Low and Higher High

rrr ttf
confirms swing reaction.
-

-1210.00

-
�-_�-c- ��_� �
. - �-- -
-_ - - - �

First I draw in pivots A, B an d C . I n the case of an I n side Median Lin e, I am actually going to use the
swin g B to C and its first reaction swing to define the pivots.

34
 � t� C
-

A �
�tlrt
-

4 th
-1225.00

t
l
<

/ .[.tt
Higher High
I
-

t l f tf
:"'1220.00
Mid·Poin' of
Pivots Band C

�
-

\
Higher low

:"' 1215.00
B Higher low and Higher High

trr ttf
confirms swing reaction.
-

-1210.00

- --
. - .
� . ,=.

I draw a lin e between pivots B and C . I then mark the mid-point of the lin e B - C .

35
 c
A �
-1225.00

< Higher High -

:"1220.00

Higher Low

B I
:"1215.00
H;g" ... Low .nO H;g"e, H;g"
confirms swing reaction.

-1210.00

I con n ect the mid-point of the B-C lin e and the low of the swing reaction . This is the Inside Median
Line or the Reverse Median Line.

36
 c
A �
-1225.00

:"' 1220.00

Higher Low

B Y;1f
-1215.00
Higher Low and Higher High
confirms swing reaction.

-1210.00

I add the Upper and Lower Parallels [MLH] to pivots B and C to complete the I n side Median Lin e set.
Let's take a look at an other example.

37
 :-1000.00

:-995.00

:-990.00

B :-985.00

:-980.00

:-975.00

:-970.00

A :-965.00

This is a tradition al Median Lin e. I t is n ot describin g price very well.

38
 :"'1010.00

:"'1005.00

:-'1000.00

�995.00
Reaction Higrl

:...9. 90.00

�985.00

:"'980.00

:"'975.00

�970.00

A �965.00

C
Mid-Point
of Line B-C

First I draw in pivots A, 8 and C. Then I draw a line between pivots 8 and C and mark the mid-point of
the line 8-C.

39
 �1010.00

�1005.00

�1000.00

�990.00

�985.00

�980.00

�915.00

�91O.00

A �965.00

C
Mid-Poin1
of Line B-C

I con n ect the mid-point of the B-C line and the high of the swin g reaction . This is the Inside Median
Line or the Reverse Median Line.

40
 �1010.00

;"'1005.00

:-1000.00

Re;"ction Hi�lh

:-990.00

�985.00

:-980.00

�975.00

�970.00

A :-965.00
/ �
C .,-// Reaction Low

I draw in the lower MLH and immediately n otice how well it con tain ed price on an earlier reaction low.

41
 :-1000.00

:-995.00

:-990.00

:-985.00

:-980.00

:-975.00

:-970.00

A :-965.00

I add in the upper MLH and then draw back in the 'traditional' Median Lin e, so you can compare the two.

42
 :-°IUOIU.UU

:-1005.00

�1000.00

:-995.00

:-990.00

:"985.00

:-980.00

�975.00

�970.00

A :-965.00

I 'fast forwarded' in time a bit to show you how the n ew I n side Median Line described price.

43
44
 Gap Median Lines

Although the nu mber of open gaps in man y commodities has decreased as markets have moved to
trading on a n early 24-hou r basis, gaps still exist, especially opening gaps. And of cou rse, those of u s
that chart "day only" or "pit only" time periods still see gaps frequ ently, because trading continu es
overnight and these particu lar charts do n ot reflect those overnight trading periods.

Gap Median Lines, like I nside Median Lines, are best viewed with a tou ch of caution . When I draw one, I
like to see that price has tested one or two of the lines before I u se them and rely that particu lar set of
lines. The more the lines are tested, the more confiden t I become. And of cou rse, if you find an area of
conflu en ce where the lines of the Gap Median Line [or an y Median Line set, for that matter] intersects
with other lines [Median Lines, MLs, SLs, WLs, trend lines, etc], more weight can be placed on that
particu lar area.

45
 B
�1010.00
Opening Gap

�1000.00

�990.00

�980.00

c
�910.00

�960.00

�950.00

Here I mark the high of the day prior to the gap higher as pivot A. I then mark the high of the open in g
gap as pivot B and the low for the move as pivot C.

46
 B
�1010.00
Opening Gap

�1000.00

Mid-Point
ofUoe B-C��f • �990.o0

W\f �980.00

�910.00
c

�960.00

�950.00

I draw a line conn ecting points B an d C an d then find an d mark the mid-poin t of lin e B-C .

47
 B
:-1010.00
Opening Gap

:-1000.00

:-980.00

:-970.00
c

:-960.00

:-950.00

I then draw a line from point A through the mid-point of line B-C. This is the Gap Median Line.

48
 B ------------------l�1010.00
___

Opening Gap

�1000.00
A ;-:-Jr------l:...990.00
�11_--__:�

�
.
.

�
c980�

�970.00
c

�960.00
�950.00

I add the Upper and Lower Parallels to complete the Gap Median Line set.

49
 ;"'1015.00

�1010.00

Opening Gap �1005.00

�1000.00

�995.00

�990.00

�985.00

�980.00

;"'915.00

�91O.00
c
�965.00

I 'fast forwarded' in time a bit to show you how the n ew Gap Median Line described price.

50
 Trading With Median Lines: Two Trade Examples

Let's go through several trade examples, from the very beginn in g steps of choosing pivots and watching
the market swings to making trading plans and entering orders and then watching price and time play
out in front of us.

51
 dJ
H�
-1550.00
B

�
1
-1500.00

tt LI rlt�� � l -1 450.00

A
t�r � -1 400.00

C
�� � �

Here is an example of using the frequen cies from three pivots to project their velocity and momentum
forward into space [time an d price]. Price has been in an orderly down trend an d I marked three
altern ating pivots: A, B and C.

52
 -1550.00
B

-1500.00

-1 450.00

-1 400.00

I draw a line between pivots B and C and then find the mid-poin t of that line. I draw a line from pivot A
through the mid-point out into price an d time, formin g the Median Line.

53
 Upper MlH -1550.00
B

Median line [Ml] -1500.00

-1 450.00

lower MlH

-1400.00

N ow I draw a line parallel to the Median Line, starting from pivot B, to form the Upper MLH. I draw
another lin e parallel to the Median Lin e startin g from pivot C and that gives me the Lower MLH.

54
 Upper MLH -1550.00

ft� -1500.00

�
w� -1 450.00

A
-1 400.00

Once the Median Line is drawn , we have a pretty good idea where price is headed: to the Median Line!
Price can test the Median Line without making a n ew swin g high for the n ext ten days; after that, an y
test of the up sloping Median Lin e will also be a n ew swing high.

55
 Upper MlH -1550.00

ft� -1500.00

�
w� -1 450.00

A
�, -1 400.00

Price will test the Median Line approximately 80 percent of the time!
Price does in deed test the Median Lin e at the measured objective of both price an d time. Remember:

56
 -1550.00
B
Upper MLH

-1500.00

-1 450.00

A
-1 400.00
1

Lin e from the minor swing and see if it carries its own frequ en cies forward. I choose three pivots: 1 , 2
Price has met its minimu m objective. I t might overshoot; it might retrace n ow. N ow let's add a Median

and 3 . I draw a line between pivots 2. an d 3 and mark its mid-point. Then I draw the Median Line an d the
two Median Lin e Parallels, the Upper MLH and Lower MLH.

57
 -1550.00

-1500.00

-1 450.00

With the n ew Median Lin e set in place, where is price headin g? I f this n ew Median Lin e carries valid
frequen cies, now that price has gapped an d closed above the n ew Median Line, price is headin g to a
test of the n ew Upper MLH.

58
 -1550.00
B

-1500.00

-1 450.00

A
-1 400.00
1

Price makes it to the Upper MLH-I n fact, it overshoots it!

59
 -1550.00
B

-1500.00

-1 450.00

1
-1 400.00

Price congests or 'coils' at the Upper MLH and then begin s headin g lower. Where is it heading? To test
the up slopin g Median Lin e, of course!

60
 -1550.00
B

-1500.00

-1 450.00

1
-1 400.00

Price makes its test of the Median Line several days later. Where is price headed? I f the longer time
frame Median Line still acts as support, price is headed back up to test the Upper MLH.

61
 -1550.00
B

-1500.00

-1 450.00

A
-1 400.00
1

Three days later, price again tests the Upper MLH. Where is price headed n ow?

62
 -1550.00
B

-1500.00

-1 450.00

1
-1 400.00

Three days later, price tests the up slopin g Median Line again . Remember price is still above the Major
Median Line.

63
 -1550.00
B

-1500.00

-1 450.00

A
-1 400.00
1

C3

Price is trying to break lower but the Major Median Line is stron g support. Price's in ability to test the
Lower MLH or the Major Median Line is a sign of stren gth.

64
 IOUU .UU
-

-1550.00

:"1500.00

:"1 450.00

1
:"1 400.00

Price gaps above the Median Line and trades above it for several days. This is another sign of strength
and price should be headed to the Upper MLH n ow.

65
 :"1 600.00

lower MlH :"1500.00

:"1450.00

1
-1400.00

Price gaps higher but cannot hold onto its gain s. I t plunges through the Median Lin e, closing below it.
Price should be heading back down to the Major Median Lin e now.

66
 -1600.00
Major Median line

-1550.00

:"' 1500.00
2

-1 450.00

1
-1 400.00

Sin ce it' s likely price is headin g lower to a test of the up sloping Major Median Line, let' s draw in a down
sloping Median Line. I pick three n ew pivots: J , K an d L. Then I draw the n ew Median Line from point J
through the mid-poin t of line L-K out into space [price an d time].

67
 :"1600.00
Major Median Line

:"1 450.00

1
-1 400.00

C3

Price plun ges through the n ew down slopin g Median Lin e, the up sloping Major Median Line an d
touches the n ew down slopin g Lower MLH. Price meets its objective in two days!

68
 :"' 1 600.00

:"' 1550.00

:"'1500.00
2

:"'1450.00

-1 400.00
1

Price stabilizes the n ext day. Price should be headed to a re-test of the up sloping Major Median Lin e
and the down sloping Median Lin e.

69
 :.... 1 600.00

:.... 1 500.00
2

:.... 1 450.00

1
-1 400.00

Price run s back above both the up sloping Major Median Line an d the down sloping Median Lin e, then
trades back to re-test the area where both in tersect. When the support formed by that area of confluence
holds, price again moves higher, fin ally testing the down sloping Upper MLH.

70
 :"'1 600.00

:"' 1550.00

:"' 1500.00
2

:"' 1 450.00

-1 400.00
1

Price has n ot broken ou t above the Upper MLH. Where is it headed n ow? B ack to the Median Line!

71
 � 1600.00
Major Median Line

� 1550.00

� 1500.00
2

� 1 450.00

1
-1 400.00

Price quickly makes it to the down sloping Median Line, where it congests for several days. Then a wide
bar forms when price tries to get back above the Median Line but price cann ot hold onto its gain s. Price
should n ow be headed lower to a test of the down sloping Lower MLH.

72
 -1 600.00

:"'1550.00

:"'1500.00
2

:"'1 450.00

-1 400.00

C3
Major
Lower MLH

The n ext day, price makes it to the down sloping Lower MLH.

73
 :"1600.00
Major Median Line

:"1550.00

:"1500.00
2

:"1 450.00

1
-1 400.00

Price is stopped from further lower movemen t by the support of both the down slopin g Lower MLH an d
the up slopin g Major Lower MLH.

74
 :"' 1600.00
Major Median Line

-1550.00

:"' 1500.00
2

:"' 1 450.00

1
-1 400.00

Major
Lower MLH

Prices tests the down slopin g Median Lin e the very n ext day.

75
 :"1600.00
Major Median Line

:"1 450.00

1
-1 400.00

Price climbs higher, n early testin g the u p sloping Major Median Lin e before heading back lower. You can
see price moving back and forth within the frequ en cies of the origin al pivots J , K and L.

76
 :"'1350.00

:"'1300.00

t :"'1250.00

:"'1200.00

:"'1 150.00

Let's look at an other example and see if we can identify some solid trade opportunities. Price has
declined to an area that has exhibited support in the past. How can we use this area of support?

77
 �l
ttH
-

:"'1350.00

W�t -

�1300.00
-

/ �t �t
�1250.00

Hftt
fl
-

:"'1200.00
-

Price touches the long :"'1 150.00

term support on 9/1/1998
Price briefly penetrates the
-

support but closes higher

- -- -
- - - - -

Perspective: Price has been in a down tren d for man y mon ths. There are multiple prior swin g lows in the
1 1 1 0 --1 1 30 area, giving significan t support. The S&P futures touched the support area and then
reboun ded above 1 250 before an other wave of sellin g began. Price pen etrates support on 1 0/8/1 998,
but closes well above the long-term support. Price rallies the n ext day as well. Is a bottom in?

78
 �l
tt
-

H W�
:"'1350.00

�
-

�1300.00

r�t( t�
B
-

lf H
:"'1250.00

t
-

lt tf
:"'1200.00

��-f
-

:"'1 150.00

A
-

C'
- -
- = --� =

I draw in the Median Lin e by choosing three altern ating pivots: A, B and C . I draw a line between pivots
B an d C and then mark the mid-point of line B-C.

79
 Drawing the Median Line is simple:

:.... 1 350.00

�1300.00

:.... 1250.00

�1200.00

:.... 1 150.00

N ow I draw a lin e from pivot A through the m id-poin t of lin e 8-C and I exten d that lin e out past the m id­
point into price an d time. This is the Median Line.

80
 :.... 1 350.00

:.... 1 300.00

:.... 1 250.00
M edian L i n e

:.... 1 200.00

L ower M L H :.... 1 150.00

N ow I draw a lin e parallel to the Median Line from pivot B out in to price and time. This is the Upper MLH.
I draw a line parallel to the Median Line from pivot C out into price an d time. This is the Lower MLH.

81
 �t
l :.... 1 350.00

Uh\ :.... 1 300.00

t fl �rrlt� t
:"'1250.00
Med i a n L i n e

t� tf
:.... 1200.00

L owe r ML H :.... 1 150.00

N ow we have our Median Line set drawn . The theory behin d these lines says that price will be headed to
the Median Line an d price will make it to the Median Line 80 percent of the time. Let' s see how price
in teracts with our Median Line.

82
 �
tt :"'1350.00

Hh\ :"'1300.00

� [l
:.... 1 250.00

�trlft 1
M ed i a n L i n e

t �r
:"'1200.00

l ower M l H :"'1 150.00

The S&P futu res gap open higher the n ext day an d trade within a range for several days before shooting
higher throu gh the u p sloping Median Line on a wide range bar.

83
 tLf1
tl :.... 1 350.00

Hh� :.... 1 300.00

B :"1250.00

�trlf t t
M ed i a n L i n e

� It
ij tf
:.... 1 200.00

l owe r M l H �1 150.00

The theory tells us that price is headed to the Median Line or to the MLH. The slope of the current
Median Line is up, so that in dicates the current trend is higher. We are looking for an area to get long the
S&P futures.

84
 :.... 1 350.00

:.... 1 300.00

:.... 1 250.00

:.... 1 200.00

:.... 1 150.00

On 1 0/27/1 998, price seems to be getting close to the Median Line. By looking at the chart, you can see
how I calculated that the Median Line is at 1 242 the following day, 1 0/28/1 998. B efore the market opens,
I enter an order to buy S&P futures at 1 244 or better.

85
 tlfttl
�ff�l
:.... 1350.00

\ :.... 1300.00

:.... 1 250.00

t rt �trtr t t
tpf
:.... 1 200.00

:.... 1 150.00

My order gets filled the n ext day. I am n ow long S&P futures at 1 244. I imm ediately place a stop-loss
order at 1 232 %, which is three ticks below the lowest price after the wide ran ge bar that broke above
the up sloping Median Lin e on 1 0/1 5/1 998.

86
 �l
tln
�t�
:"'1350.00

:"'1300.00

t ft �trtrt 1 :"'1200.00

�J :"'1150.00

The S&P futures make a n ew high for this move up on 1 0/29/1 998. After the close, I move my stop-loss
order to three ticks below the I ow an 1 0/28/1 998, at 1 242 %. This is now the n ew swing low.

87
 �
tltr :.... 1 350.00

�l\ :.... 1 300.00

:: ,", - at 1 2QC 3,4

:"'1250.00

t fl �trlf t 1
���� �
Lonlj at
--
1 ...:�
4 4 --�

tpf
:.... 1 200.00

:.... 1 150.00

The S&P futures n ow make six higher highs in six days. Then price forms an outside day, but still closes
higher. Because this day's low was lower than the low of the previous day, its low is now the mini swin g
low. After the close, I move my stop-loss order up to three ticks below the low of this day, at 1 290 %.

88
 ttrttl
�tr :.... 1 350.00

�\ :.... 1 300.00

t fl Itflft t
t� tf
:.... 1 200.00

:.... 1 150.00

The S&P fu tu res move higher the n ext day bu t then correct lower for four days before turnin g back

ticks below this low, at 1 296 �.

higher. The low of the correction , 1 297, is n ow the min i swing low. I move u p the stop-loss order to three

89
 :-1400.00

:.... 1 350.00

:-1300.00

:-1250.00

:-1200.00

:.... 1 150.00

N ow that I have a fair amount of profit in this trade, I start to look at potential profit targets. There are
roughly 90 S&P handles between the Median Lin e and the MLH. If price approaches the Upper MLH, I
want to be exit this trade with a nice profit. I will enter a profit order each morn ing at the proj ected price
of the Upper MLH less 1 0 S&P han dles.

90
 �1 400.00

�1350.00

/ittvlf 01 D' .1 �"6 1 I;

�1300.00

tHt�4!.o1"F-r
•

� �
�1250.00
------:- ....-:----

�1200.00

:-1 150.00

Five days later, price con tinues to move higher. The Upper MLH comes in at 1 378 an d my profit order is
at 1 368. The stop-loss order remains at 1 296 �.

91
 �1 400.00

�1350.00

�1300.00

�1250.00

�1200.00

�1150.00

The n ext day, price makes a high of 1 373 an d I am taken out of my position for a n ice gain . As soon as
my limit sell order was executed, I can celled my stop-loss order. The trade n etted 1 27 S&P han dles.

92
 :.... 1 350.00

:.... 1 300.00

:.... 1 250.00

-1200.00

:.... 1 150.00

Four tradin g days later, price plunges lower after testing the recent highs. The theory says price should
have made it to the Upper MLH and since it missed and turned lower, it now should be headed lower to
test the up sloping Median Line.

93
 :"'1 400.00

:"'1350.00

:"1300.00

-1250.00

:"'1200.00

:"'1150.00

Price heads lower but hasn't yet tested the Median Line. The theory fu rther states that if price falls short
of its u pside target, it should overshoot the target at the Med ian Li ne by roughly the amount it missed the
U pper MLH by, in this case 1 0 S&P handles .

94
 . ....uu.uu

rftttlf� :.... 1 350.00

(r�t ttl.�r�r :"'1300.00

ll�(�t t

tt �����r
II
:.... 1 250.00

l ower M L H
:"' 1200.00

:.... 1 150.00

I want to buy a reaction that tests the Med ian Line but I bel ieve that it may overshoot the Med ian Line by
1 0 S&P handles. I beg i n working a limit order to buy S&P futu res at 1 0 handles below the projected price
of the u p sloping Median Line.

95
 :" 1 400.00

:"1350.00

:"1300.00

l owe r M L H

:"1 150.00

S&P futu res trade lower, al most testing the u p sloping Med ian Line. I stil l expect price to overshoot the
Median Line by 1 0 S&P handles . I re-calculate the Median Line price for the next day and then enter an
order to get long S&P futu res at 1 0 handles below the Median Line price, at 1 3 1 7.

96
 I "'I'UU.UU

:"1350.00

-1300.00

:"1250.00

:"'1200.00

:"1 150.00

S&P futu res plu nge throug h the Median Line and my limit buy order is fil led at 1 2 1 7. I enter an initial
stop-loss order at 1 296 %, three ticks below the earl ier mini swi ng low.

97
 . ....uu.uu

:.... 1 350.00

:-1250.00

:"' 1200.00

:.... 1 150.00

S&P futu res trade higher and close above the Median Line the next three days. I now move u p my stop­
loss order to the low of the prior swing low, less three ticks , at 1 327 �

98
 �1 400.00

�1350.00

�1300.00

:.... 1 250.00

:.... 1 200.00

:.... 1 150.00

S&P futu res trade h ig her for fou r more days and then, as the Holidays approach , price consolidates . Not

the prior swi ng h i g h , 1 372 �.

wanting to give u p too much potential profit, I move my stop-profit order u p to two S&P handles below

99
 �1 400.00
t----2fII'''--
- -J

�1350.00

�1300.00

�1250.00

�1200.00

�1150.00

After the New Year, S&P futu res prices a re again higher. On 1 /4/1 999, price makes a wide bar and

low of the wide bar, at 1 392 �.

closes lower. When price closes hig her the next day, I move my stop-profit order to three ticks below the

1 00
 �1500.00

�1450.00

Stop o rd e r
= 1392 1 .· 4
�1350.00

�1300.00

:"'1250.00

As price approaches the U pper M L H , I note again that the d istance between the M L H and the Median
Line is rou g h ly 90 S&P handles. I wil l begi n working profit orders 1 0 S&P handles below the projected
price of the U pper M L H . I enter the first profit order at 1 454.

101
 �1500.00

:-1450.00

tn ord e r
= 1 428 1.14 :-1 400.00

:-1350.00

L o n g at
1317
Upp �1300.00

:-1250.00

:-1200.00

On 1 /6/1 999, price gaps h ig her and manages to close the day leavi ng that gap open. Price gets close to
my profit order but I am not fil led . The gap remains open the next day as well , so when my profit order is
not fil led , I move my stop-profit order up to three ticks below the high of the open gap, at 1 428 �.

1 02
 :-1500.00

:-1 450.00

:-1 400.00
'='"F i l l e d !-

:-1350.00

� n (l at
317 lf ) :-1300.00

:-1250.00

On 1 /8/1 999, price makes a new high for the move but does not reach my profit order. The next d ay,
price moves down qu ickly and I am stopped out at 1 428 � for a nice profit of 1 1 1 � S&P handles . I
cancel my profit order at 1 459 and make certain my broker is working no fu rther orders for my accou nt.

1 03
 Drawing Median Line MLHs, Sliding Parallels and Warning Lines

There has also been some confusion about the origination of the MLH and whether they were part of Dr. Andrews' original
Med ian Line method , but I'll quote his original course again: "You see that a parallel has been d rawn from Pivot 2 and
another from pivot 3. These are abbreviated with Capital letter H since that letter has two parallel vertical bars. So when
you want to distinguish them from other lines you wou ld letter them 1 M LH or 2MLH, the nu merals refer to the nu mber of
the pivot from which that ML is d rawn . When prices drop below that H that slopes u pward it signals Sell . . "

Drawing the u pper and lower MLH to a trad itional Med ian Line is quite simple: Once you have a Med ian Line d rawn from
Pivot "A" through the mid-point of Pivots "B" and "C," d raw lines parallel to this Median Line that originate from Pivots "B"
and "C."

Sliding Parallels [SL] are also parallel to the Med ian Line and can be drawn "inside" the Median Line [that is, between the
u pper and lower MLH] or "outside" the Median Line [meaning above or below the MLH]. They are used as support and
resistance and will be covered extensively in a later chapter.

Warning Lines [WL] are also d rawn parallel to the Med ian Line and at a set distance equal to the distance between the
Med ian Line and the MLH, which is the length of the mid-point of the line connecting Pivot "8" to Pivot " C . " I was taught
to set my software to d raw fou r above and fou r below when working with what I consider "major" Median Lines. They often
call major turns in the markets, especially when they intersect with other Median Lines.

Warning Lines

When d rawing Median Lines, I spoke about the frequencies pivots carry with them that are then projected forward in price
and time. There are times when you'll find that price breaks out of a Med ian Line that, prior to the break out, has been
describing price quite well . This is where the Warning Line comes in.
Any of you with any musical background know that musical notes carry normally u nheard frequencies-so cal led
'overtones'-that are a multiple of the perceived frequency we hear. At times, the overtones can be heard , but in general,
they are there in the background . Look at the chart below:

1 04
 200

1 00

- 200

This is a crude representation of how a Warning Line operates. When a Med ian Line has been
describing price over repeated testi ng, a Warn ing Line wil l s how you the multiple overtones of the
frequencies inherent in that Median Line-thus g iving you the next logical target for price once it breaks
th rough the Med ian Line.

Warning Lines are generally d rawn at multiples of the d istance between the Med ian Line and the Median
Line Parallels [MLH] out past the Median Line Parallels.

1 05
 A
�850.00

Second V'·larnin�l Line

�840.00

�830.00

First \Narnin9 Line

�820.00

�810.00

B
�800.00

�790.00

:-780.00
Support at 773 long-term low

I meas u re the distance from the Median Line to the M L H . Then I d raw a line parallel to the Median Line
that far away from the outer M L H . I then added a second Warning Line [WL] .

1 06
 A

\
:-850.00

\
:-840.00

:-830.00

:-810.00

B \ :-800.00

:-790.00
"\, .
\"

'" :
\ :-780.00
Support at 773 long-term 10

:-770.00

Once price closed outside the down sloping M L H , I marked pivots 0 , E and F. Then I added an u p
sloping traditional Median Line set and the corresponding u pper and lower First Warning Lines.

1 07
 �880.00

�870.00

�860.00

�850.00

�. � 840.00

�830.00
First Warning
Line (V\A..1 ]
�820.00

�
�810.00

ctoJ�
.•.... :

�790.00

�780.00

"-" " �770.00

V\Il1 ''-
.
" "'
'

You can see that even thou g h price has moved out of the two Med ian Line sets, thei r frequencies
conti nue to exhibit a strong infl uence on where price finds support and resistance.

1 08
 Sliding Parallels

Price wil l sometimes break out of the Med ian Line Parallels [M LH] , making a spike high or low before
quickly recovering back withi n the Median Line set. When that h appens, draw a new l i ne parallel to the
MLH from the spike high or low forward i nto price and time. This new l i ne, the Sliding Parallel, can often
be u sed as support or resistance. And it can also be used as a high probabil ity buy or sel l area.

The most common method is to use the breach of the sliding parallel as a sel l stop or buy stop entry in
the d i rection of the cu rrent price movement. These breaches can lead to sharp follow-throughs,
especially if price has traded withi n a range bou nded by the sliding parallel and the U pper or Lower MLH
and then finally breaks out past the siding parallel .

Another way to use slid ing parallels is to remember that the sliding parallel now basically carries the
same frequency of support the MLH did prior to the original price spike through it. Therefore, on an
u pward sloping sliding parallel , you can buy as price approaches the sliding parallel and have a
convenient stop loss level that is just below the spike low that created the sliding parallel .

A completely way to use the sliding parallel is to view it as a gauge of the market stops being run . If price
is approaching an u p sloping sliding parallel and you are looking for a convenient and rel atively safe
entry point, wait for the fol lowing set u p to occu r: If price briefly breaches the u p sloping sliding parallel
but then manages to close back above the up sloping sliding parallel , enter an order to get long just
above the high of the last bar, where price. climbed back above the sliding para llel . You r stop would then
be just below the low j ust created when price had breached the sliding parallel .

1 09
 �1530.00

�1525.00

�1520.00

�1515.00

�1510.00

�1505.00

�1500.00

�1 495.00

:-1 490.00

�1 485.00

�1 480.00

Price makes a sharp d i p below the u p sloping Lower MLH and then cl imbs back above it and closes
above it. At the end of the day, I draw a line parallel to the Lower MLH throug h the spike low.

110
 :-1530.00

:-1520.00

.',
. :-1510.00
.
"... .,,'.
...
A break belo'\v·tl1e sliding
.,
....... ........
parallel would bfhuninous.
..... " :-1500.00
.. . "
. .'" ,
""
- .

'��
, "'..... :-1 490.00

:-1 480.00
'-.......
.. .... .
:-1470.00

:-1 460.00

:.... 1 450.00

I add i n a down sloping traditional Median Line set. You can see where price projects if the sliding
parallel is now broken.

111
 :-1530.00

:-1520.00

:-1510.00

A break belo e sliding

:-1500.00
�"
parallel would b'e�minous.

�
:-1 490.00

:-1 480.00

:-1470.00

� �.�
:-1 460.00
�
Logical Objective
at Warning Line :.... 1 450.00

The impl ications and signs were there to be read, if you were prepared . Note the use of the area where
the Warning Line and the lower down sloping MLH met as the price objective .

1 12
 �1105.00

�1 100.00

�1095.00

�1090.00

�1085.00

�1080.00

B �1075.00

�1070.00

�1065.00

�1060.00
�1055.00

�1050.00

Price has been trading in a narrow down sloping range arou nd the Median Line. I d raw in a pair of
Sliding Parallels, equ id istant from the Med ian Line. This is the bou ndary of the cu rrent range.

1 13
 �1105.00
�1100.00

�1095.00

�1090.00

�1085.00

;"'1080.00

B ;"'1075.00

�1070.00

;"'1065.00
�1060.00
�1055.00

�1050.00

Price briefly trades below the lower Sliding Parallel on the third try lower but manages to close back
above the l i ne. Sliding Parallels can also be used as areas of support: After the next bar closes, I enter
an order to get long above the high of the cu rrent bar, with a stop loss just below the thi rd spike lower.

1 14
 �1105.00

�1100.00

�1095.00

�1090.00

�1085.00

;"'1080.00

B
Upper MLH is
second target

�1060.00
�1055.00
3
�1050.00

You can see how the lower Slid ing Parallel acted as critical su pport and also g ave u s a conven ient stop
loss leve l , al lowing us to go long in the lower portion of the range with acceptable risk. The first profit
objective was the u pper Sliding Parallel and the second profit objective was a t the U pper MLH .

1 15
116
 Trend Detection Using Median Lines:

Does Price Reach The Median Line 80 Percent of the Time?

"Median Lines enable the u ser to be one of the few who can tell where the prices are headed , and the place they will
reach about 80% of the time, and when approximately that place will be reached . Slopes of alternate Median Lines of
comparable length indicate the trend . . . [These are] vector d iagrams of force."

Original Action-Reaction Course By Dr. Alan Andrews

One of the first questions I get from traders that begin studying Median Lines is: How do I choose what
pivots to u se for my Median Lines? Dr. Andrews' cou rse materials can be a cryptic read , but I always
find the best way to approach his work is i n a l iteral fashion. He speaks in several passages about using
a lternating Median Lines of com parable length-and to me, this says all pivots contai n information about
the frequencies of price and can therefore be usefu l . I n fact, D r. Andrews teaches how to u se "Mini
Median Lines," which focus on the alternate closes of succeeding bars of price .

I n the following selection of charts, I have taken Dr. Andrews l iterally and hand d rawn each alternate
Median Line i n a downtrend . You wil l see that price does i ndeed meet the Median Line rou g h ly 80
percent of the time using this alternating pivot method and you can clearly see the Med ian Lines as
vector l ines of force. In the example below, note the persistence and l i keness of the a ng les denoted by
the down sloping Median Lines. Although price does meet several u p sloping Median Lines, it is qu ite
clear from the Median Lines or Vector Lines of Force that price is in a down trend .

1 17
 :-1500.00

:-1 450.00

:-1 400.00

Corrective rally? ;-1350.00

:-1300.00

:-1250.00
Strong Down Trend
:-1200.00

:-1 150.00

:-1100.00

Will price conti nue higher here or head back lower? It has often been said that price wil l reach the
Med ian Line 80 percent of the time. I n this example, I wil l show you how to determine the trend and I 'll
also show that price does reach the Med ian Line 80 percent of the time.

118
 �1350.00

c :.... 1 300.00
Corrective rally?
r <
1 . Opens lower
2. Makes new low
3. Closes lower

:.... 1 250.00

:.... 1 200.00

:.... 1 150.00

:.... 1 100.00

pivots A, B and C.
When price makes a clear pivot lower, I d raw in a Median Line using the swi ng h ig h , low and high from

1 19
 :"'1350.00

Corrective rally?
) c :"'1300.00

U
lf
1 . Lower low
-E--- 2. Higher High
Median Line 3. Closes Higher
-----7
Target Met
:"'1200.00

� t t tr�tfl t�rtt :"'1 150.00

�1 100.00

Price meets the Med ian Line and then forms a clear pivot h ig her.

1 20
 :....1 350.00
A

.�� c
:....1 300.00
I�r�rttrL�q�t \� , ,\t\�.�A-'1f�
1,H1��
----

1:.... 1 250.00
tj B r - 1.
<----
J J I �fI l
G ap open Iower
�I �
\\ �'
:....1200.00
2. Lower low
H >
Median Lin e 3 . Closes lower

\
Target Met
\

Jt � tUH :"' 1 150.00

:....1 100.00

--
\
- - -, --

After a brief rise, price agai n makes a clear pivot lower.

1 21
 A

���\ 1
c
-1300.00

t
t �rtr tr�� �� B
' \. �
VI�
�
-1250.00

�� Median Lin e
>
<
o
Target Met

\
1 . Gap open higher
2. Higher high -1200.00
3. Closes higher

-1 150.00

After nearly meeti ng the Median Line, price makes a clear pivot higher. Price met the new Median Line
by the time we were able to detect the pivot.

122
 c
-1300.00

-1250.00
G

\ \\
Target M et ---=>�
Median Line

D
,..
\
't-....�-t
..L irl��r-------------1

1 . Double Top Highs

Inside day followed by: -1200.00
2 . �de range lower

F\
3. Closes lower

-1 150.00

After a few days of congestion , price makes a clear pivot lower.

1 23
 A

� C
-1300.00

� � ff \

t �rtft l� \t B
-1250.00

lij
' \�

\\\\--�-r. \rl
, 1'tttJ''-tt-i�
D \\' - -----I 1200 00
_ .
- -

\
-- -

t i=\ <
1 Higher high

\
.

2. Higher low

Mev,ian Line \,-

::.- -7
3. Closes higher

\
Tar9' Met \
\\. \\
. \

Price meets the Median Line and then makes a clear pivot higher.

1 24
 -1300.00

-1250.00
Median Line
Target M et

o \
\
<?--- 1 . Lower high
-1200.00

\ ��
2. Lower low
3. Closes lower

M e� ian Lin -�
\
\ \
Targ�t Met

\
\ \
\

Price meets the u p sloping Median Line and then makes a clear pivot lower.

1 25
 c
-1300.00

-1250.00

-1200.00
<
1 . Higher high
2. Lower low
3. Closes higher

A wide range outside day forms the next pivot higher.

1 26
 -1300.00

-1250.00

-1200.00
<
1 Lower high
.

\
2. Lower low
3. Closes lower

\\. J
H \\
\

\ \
\

-1 150.00

P rice fails to meet the u p sloping Median Line before making a clear pivot lower.

1 27
 A

�� c
-1300.00

t t�tt��
�
B
\ -1250.00

\ o
-1200.00

<
1 Higher high
.

2. Higher low
3. Closes higher

-1 150.00

Price meets the down sloping Median Line and by the time we can confirm the pivot higher, price meets
the new u p sloping Median Line as wel l .

1 28
 •.., ...u .uu

c
-1300.00

-1250.00

o \ -1200.00

\J -E--- 1 . Lower high

2. Lower low
3. Closes lower

-1 150.00

\\\
Price makes one more bar hig her and then makes a clear tu rn lower and meets the new down sloping
Med ian Line.

1 29
 :"1350.00
A
c :"1300.00
�rt B ��tA----;--- ---: -----:7L-==7.L------l:"1250.00
-- �
1 214.89
:"' 1200.00
3. Closes lower
:"1150.00
:"1100.00

Price makes a large break lower. Notice the down sloping Med ian Lines form lines of force that are
orderly and consistent in their direction and momentu m .

1 30
 The Median Line As A Trend Test Barrier

I n many ways, Median Lines a re simple tools. But besides simple trend detection, they can be u sed in
ways that might not seem i ntu itive at fi rst.

I n another section of the Original Action-Reaction Cou rse, D r. Andrews speaks about using any sets of
pivots to d raw a Trend Test Barrier:

"Start with any pivot such as low pivot 1 and d raw a line bisecting the distance between pivots 2 and 3 . . . This bisecting
line is always a test barrier, whatever pivot you start from. If prices fail to rise above the barrier, the rise is finished , as
turns out to be the case at pivot 4. Next, start at pivot 2 and draw a line bisecting 3 and 4. So this is l ike a vector d iagram
of forces showing the trend will be stead ily down along the dash line u ntil medians point u pward again."

Original Action-Reaction Course B y Dr. Alan Andrews

The Median Line is both a n attractor and a barrier. How price responds as it approaches the Median
Line can tel l us much about where it is headed next. On the one hand, if price meets and exceeds the
Median Line, expect the trend to continue. However, if price fails to make it to the Med ian Line, its
probable that the cu rrent move in the direction of the trend h as been aborted early. As Dr. Andrews
says, "When prices reverse before reach ing the M L , leaving a "space", they wil l move more i n the
opposite d i rection than when prices were rising toward the M L ." The ''Trend Test Barrier" reminds us that
there a re certai n minimum movements we expect if price is to continue to move i n the direction of the
trend .

131
 -950.00

lr
trl
�
-900.00

3
-850.00

�tl
-800.00

�,
� =�
-� --- -
-�

Dr. Andrews stated : "Start with any pivot such as low pivot 1 and d raw a l i ne bisecting the distance
between poi nts 2 and 3. This bisecting l i ne is always a test barrier, whatever pivot you start from ." I n this
example, I begin by label ing the three pivots and then d rawi ng i n the Median Line.

1 32
 -950.00

lr l -900.00

f��t 1 / �3
tt
-850.00

�Ilr
-800.00

Price tests the Median Line but cannot close above it.

1 33
 -950.00

It 1 -900.00

rt�t 1 �
�
t� tt
-850.00

-800.00

--

Price again tries to test the u p sloping Median Line, the Trend Test Barrier, but fails to close above it.

1 34
 4 //
-950.00

� r r l � f/ / -900.00

//'
3
-850.00

-800.00

If price fails to rise above the Median Line, the Trend Test Barrier, the rise is fin ished , as tu rns out to be
the case at pivot 4 . I add the lower Median Line Paral lel to fu rther show the price fai l u re.

1 35
 ////
Price must rise past the Media n line, the
true ''trend test barrier," or the rally is ouer.
-950.00

-900.00

-850.00

-800.00

I started at pivot 2 and added a l ine bisecting pivot 3 and 4 . This is the Median Line. Then I added the
u pper and lower Median Line Parallels. Dr. And rews stated : "So this is l i ke a vector diag ram of forces
showing trend wil l be steadily down u ntil the Med ian Lines point u pward agai n . "

1 36
 Using The 0-4 Pivot Count to Anticipate Market Turns

"The late R. N . Elliot and John C. Sinclair of Francis I Du pont & Company were the first to point out that all bull
markets are composed of five fluctuations, three u p and two down during the rise, and a down -u p-down formation
during the correction , or counter move following the rise. Ell iot's contention was that this followed a law of
nature . . . [1] had pleasant and informative d iscussions with Mr. Clyde Morse, a former co-worker with Elliot [and he]
stated that those apparent inconsistencies where there cou ld be more than five trends counted were termed
extensions by Elliot.

Professor Anderson's Rule d iffers from Ell iot's in observing 5 P after the zero starting point for the first rise, and 5 P
on the down trend before a down trend line is crossed by rising prices . . . l n nearly every case you can count 5 pivots
after the 0-4 line has been penetrated before the next five Ps follow the crossing of the resulting trend line, and
action taken .

Original Action-Reaction Course By Dr. Alan An drews

When doing you r charting analysis, it sometimes helps to have a set of g u ideposts to help you
thi n k about the u p-coming possibilities. Let me state u p front, this is not Elliot wave theory i n any
way, shape or form . It is meant to be a "loose" count that simply keeps you aware of how many
l i kely pivots have occu rred since the last change i n trend . Once we have seen three clearly defined
alternating pivots, we begin watching more closely for the fou rth pivot.

Once a fou rth pivot is evident, d raw in a trend l ine, con necting Pivot [0] to Pivot [4] . This is the
Andrews 0-4 Line and if this l ine is breached , the trend in that d i rection is most l i kely over. Note
that this does not always mean a new trend in the opposite d i rection wil l take place. At times, this
breach is the due to the stagnation of prices and a new trend i n the same d i rection l ater follows . I n
this case, we would again label the first leg out of the congestion as beginning with Pivot [0] and
expect at least five clear pivots i n the same d i rection before a trend change is detected .

1 37
 -950.00

-900.00

-850.00

Price has met its u pside objectives, testing the u pper MLH twice but fail ing to make any prog ress above
it. We begin mon itori ng price for confirmation that a top has formed .

1 38
 -950.00

-900.00

-850.00

For cla rity's sake, I l abel the cu rrent swing high as [PO] , denoting its potential as the beg inning pivot of a
new swing lower. I then d raw i n the correspondi ng Median Line set.

1 39
 -950.00

-900.00

-850.00

Price tests the swing support at 93 1 and then ral l ies hard . We're still watch ing for confirmation of a new
swing lower.

1 40
 PO

-950.00

-900.00

-850.00

Price tests the swing su pport at 93 1 again the next day after the rally fails. When price closes near its
low, I add l abels to the next two pivots, [P 1 ] and [P2] . I add a new Med ian Line using the two new pivots .

1 41
 -950.00

-900.00

-850.00

Price gaps through the support at 931 and trades down throug h the u p sloping Gap Med ian Line. Price
has now made it to the Median Line d rawn from pivots [PO]-[P 1 ]-[P2], so I am watching for any sign that
a swi ng low has been made.

1 42
 PO

-950.00

\NarningLine--
-900.00

-850.00

Price spi kes lower the next morning, testing the Warning Line of our down sloping Median Line. When
price qu ickly recovers, I mark the spike low as pivot [P3] . Like Median Lines, Median Line Parallels and
Sliding Parallels, watch for price to turn at or near Warning Lines .

1 43
 -950.00

-900.00

-850.00

Price rall ies to test the confluence formed by the old swing support at 931 and the Gap Median Line but
the ral ly fails there. Price turns back down and I mark that high as pivot [P4] .

144
 -950.00

-900.00

-850.00

Now I d raw a line from pivot [PO] through pivot [P4] . This is the Andrews 0-4 Pivot Line. Theory tells
me that as long as price remains below this l i ne, the cu rrent down trend conti nues. Note that I have
assu med [P4] wil l stand as a swi ng high and that a new low wil l be made before p rice cl imbs above [P4] .

1 45
 :-980.00
PO :-970.00
P2
:_960.00
:-950.00
:-940.00
l....L-
..- --F....--
....- �
-I --�� --1:_930.00
:_920.00
--- -

:-910.00
:-900.00

Now I d raw i n the new Median Line set from pivots [PO]-[P3]-[P4] .

1 46
 P2
:"'960.00

:-950.00

:-940.00

:-930.00

:"'920.00

:-910.00

t :-900.00

:-890.00

:-880.00

Price gaps lower the next morning, throug h the 903 swing support and the down sloping Median Line. It
paused at the up slopin g lower Gap MLH and then finished the day near its lows, rig ht at the cu rrent
Lower M L H . I am now looking for any sign that a swing low has formed , which would be pivot [P5] .

1 47
 �970.00
· JUU.UU

�960.00
�950.00
�940.00
�930.00
�920.00
�910.00
�900.00
�890.00
�880.00
�870.00

Price ral l ies from the test of the down sloping Lower MLH [as we shou ld anticipate] . Once it closes
above the down sloping Median Line, I l abel the low as pivot [P5] . Now that we have seen five pivots, we
watch for a break above the PO-P4 Line as confirmation the swi ng ended .

1 48
 PO
�960.00
t� P2

:--950.00
:--940.00
J P1
P4
:--930.00
:-920.00
931 Sw;ng S'pport

P3
:-9 10.00
:-900.00
�890.00
MLH

�880.00

When price gaps lower on the opening , I l abel the swing hig h as pivot [P6] and d raw i n the new down
sloping Median Line set. Price ru ns throug h the 876 swing support d u ring the opening bar, but then
ral l ies back to fil l the opening gap. I label the morn i ng low as pivot [P7] and add an up sloping Median
Line using pivots [P5]-[P6]-[P7] .

1 49
 P2
�960.00
�950.00
:-940.00
:-930.00
:-920.00
931 Swing Support

P3
:-910.00
:-900.00
�890.00
903 Swing Support
MLH

�880.00

Price breaks th roug h the 0-4 Pivot Line several days later. I add the u pside pivots and d raw a new u p
sloping Median Line set using pivots [PO]-[P 1 ]-[P2] . Let m e stress again that we always expect prices to
make at least five clear pivots . Seeing five pivots doesn 't mean the move has ended! Once I have seen
five pivots, I begin watch ing for signs that the 0-4 Pivot Line wil l be violated , terminating the swin g .

1 50
Combining The Basic Cou nt a nd Median Lines
To Anticipate Potentia l Pivot Areas :

Two Trade Examples

1 51
 :-930.00

:-920.00

:-910.00

:-900.00

:-890.00

:-880.00

Major Median Linl�e__"",""fIII'''''''

:-810.00

:-860.00

1 52
 Using the Basic Count and Median Lines Together to Trade

Let's see if we can use this method of cou nting, along with this basic method of using Med ian Lines, to set u p and execute
several trades. First and foremost, we must consider the longer time frame context: What is the longer-term trend? Price
has recently tested the u pper MLH of a Major up sloping Median Line set. Two attempts were made to break and stay
above this M L H , leaving what many chartists would call a double top formation at the 925-926 area, before price climbed
back down with in the longer term M edian Line set. Price has now made a clear wave lower, traversing from the u pper
MLH down to test the Median Line. Looking at the chart above, I have marked the pivots [PO] to [P5] .

Note that price i s cu rrently testing the Med ian Line. W e know that it i s highly probable that price will attempt to form a pivot
in this area. Also note that I have d rawn in the PO-P4 Line, which marks the "Line of Containment" for this down wave. As
long as price stays below this line, we will consider it likely we are still within this downward structure. I state all of this as
structu re for considering the possible outcomes that are before us in price and time. We must anticipate the possibilities
as price and time u nfold before us if we are to succeed as traders.

Let's start out with a simple question: Why do I think this is a high potential tu rn ing area? I know from studying tens of
thousands of charts that I have d rawn and presented over the years that price will often tu rn at or near the Median Line,
especially if that Median Line and or its associated MLH lines have been tested . The longer term Median Line and MLH in
this first chart have been tested nu merous times and price has respected them. That does not mean that price turns
exactly at the Med ian Line or the MLH, but rather, tu rns come as price interacts with these lines. W hen price gap above
the lines, as they did in the chart above at the formation of pivot [PO], price came back to re-test the line, for example.

Another reason for some confidence in this area as a turning point is the confluence formed between the longer term u p
sloping Major Med ian Line and the down sloping M L H [d rawn i n red] . I n effect, we have two Med ian Line sets telling u s
this i s a high probability area for a tu rning point.

And last, I like that price ran a bit past the Major Med ian Line but rall ied to close back above it. This is often a sign of a
tu rn being formed at or arou nd a Median Line or MLH. If I had on a short position, I wou ld have covered as price
approached this area . If I was looking to go long, this is a high probability area to establish a long position . Let's see if we
can fine-tune an entry.

1 53
 �925.00

�920.00

�915.00
�910.00

�905.00

�900.00
�895.00

;"'890.00

�885.00
�880.00

�875.00
Major Median Line

1 54
The first q uestion I'll get is, "why d idn't you simply go long at the test of the longer-term u p sloping Med ian Line?" The
simple answer is that there is noth ing wrong with that technique. We buy after a decline in price, as price approaches a
probable turning point. Price certainly has approached a probable turning point. You could have gotten long at the test of
the Major Median Line or waited for price to re-enter back above the Median Line, which it d id during the last period of the
day. If you used this second technique, you r stop would have been a point or so below the low of the day.

But this is an example of using the count in conjunction with simple Median Line techniques, and to this point, we haven't
gotten any confirmation that the downward thrust has terminated . We have had five clear pivots and we have now tested
clear support in an area likely to spawn a tu rn .

Looking a t the second chart, price d id indeed turn at the intersection with the Major Median Line. And although i t traveled
qu ite a distance higher, its u pside motion failed before it was able to test the PO-P4 Line. W hen price makes a wide range
bar lower, testing the down sloping Median Line, I mark in pivot [P6] . Although price again ru ns down to the up sloping
Major Median Line, it again pulls back at the end of the day.

The first bar of the next day [the last bar on the second chart] ru ns through the up sloping Major Median Line to the
downside, making a new low for this move. For all intents and purposes, I consider this move the same as price having
gapped below the Median Line. That means that price should now either accelerate to the downside or re-test this same
up sloping Major Med ian Line. In my mind , this is most likely the defining moment in this down move.

1 55
 Prior Swing High
�925.00
�920.00

�915.00
�910.00

�905.00

�900.00
�895.00

�890.00

�885.o0
�880.00

�875.00
Major Median Line

1 56
Looking at the third chart, price d id not accelerate to the downside. I nstead , it was immed iately d rawn back to test the u p
sloping Median Line. Two bars later, price closes back above this Major Median Line and I mark i n pivot [P7] . Remember
that price had g reat difficulty breaking away to the u pside from the Major MLH associated with this Major Med ian Line. It
certainly appears price is now having the same problems breaking below and staying below this Median Line.

My attention is now focused on the two lows formed below this Median Line. To me, this represents a low-risk buy area. I
d raw a line parallel to the u p sloping Median Line that bisects the lower of the two lows at 870 .00. I also draw in a
horizontal line at 873, denoting the original swing low at pivot [P5] .

P rice has made seven clear pivots. It i s having great d ifficulty gaining further ground below the u p sloping Major Med ian
Line. We are in a potential turn area . And I consider this prior swing low area at 873 a low risk entry point for a long trade.
I am a nticipating that price may again test this area of support and if it does, I wou ld like to take advantage of it by
establishing a long position . I enter a limit order to go long at 873 .00 with my broker.

There are two th ings I point out again and again: 1 ) You must anticipate what the market possibil ities are so that you are
acting, rather than re-acting as time and price unfold in front of you . 2) For me, good trade location is very important. I look
for the trade set up that su its my trading style and a trade location that gives me the risk reward properties that suit my
style. If I can't get trade location that's ideal, I'll generally pass on the trade.

If price re-tests this area of support, I will be long at 873. The low of this move has been 870.00, so my in itial stop loss
order would be at 869.25, th ree ticks below this extreme low. Note that if a new low occu rred to stop me out of a potential
long position, it would also be below the sliding parallel to the up sloping Major Median Line. I enter my initial stop-loss
order at 869.25 with my broker and watch price u nfold before me.

1 57
 �925.00

�920.00

�915.00

�910.00

�905.00

�900.00

�895.00

;"'890.00

�885.00

�880.00

�875.00

Mlljor Medilln Line

1 58
Price tests the support again and makes it as low as the sliding parallel before rebounding hard . I get filled on my l imit
order a nd I am now long at 873 .00. I double check with my broker to make certain that my initial stop loss order is in the
market at 869 .25 when I get my fil l on my long position .

At the end of the day, two bars later, price closes back above the u p sloping Major Median Line and I re-Iabel pivot [P7] as
pivot [P7- PO] to denote that in all probabil ity, the last pivot [P7] is also the beginning of a new u pward move. The
confirmation of this won't come u ntil the PO-P4 Line is breached , however.

Once price closes back above the up sloping Major Median Line, you could have also considered raising you r stop-less
order from the initial level. Two possible levels at this point might be th ree ticks below the low just made [at 872,00] ,
which wou ld give you a new stop-loss order at 871 .25. If you wanted to be very aggressive, you cou ld move it u p to three
ticks below the bar after I got filled at 873.00 [the second to the last bar on the chart above] . That bar's low was at 875.50,
so the new stop-loss order would actually be a stop-profit order at 874.75. This would "guarantee" a profit on the trade,
u nless there was horrendous slippage.

But because I l i ke the trade location and the trade set u p , I ' l l leave the stop-loss at its initial level . If this
tu rns out to be the beg i n ning of a new wave h ig her, I am hoping to get quite a bit more out of this trade .

1 59
:-930.00

:-920.00

:-910.00

:-900.00

:-890.00

:-880.00

:-810.00

:-860.00

1 60
I n the morning , price gaps higher on the opening, above the PO-P4 Line. This confirms pivots [PO], [P 1 ] and [P2] and also
confirms that the downward move has ended .

We are still long at 873.00 and while we watch the first handfu l of bars u nfold , our stop-loss order remains at the initial
level of 869.25, although you could certainly move it higher now to preserve profits. If the gap remains open for a few
more bars , I will be incl ined to snug my stop up, but for now, I'll watch just a bit more.

At this point in a trade like th is, I am trying to focus on what the possible outcomes may be. Here's what we know: Price
made a nice test of a su pport area and the rise from that support area failed just below the PO-P4 Line, which created
pivot [P 1 ] . We then saw a second test of the su pport area, which is where we had orders to get long . The support area
held for again, leaving behind pivot [P2] . Price then closed back above the up sloping Major Median Line. Now price has
gapped above the PO-P4 Line on its way towards find ing a potential pivot [P3] . Where is pivot [P3] likely to form?

1 61
 Prior Swing High -;";";��----....�:..
., �925.00
�920.00
�915.00
t--__
Pr-=.
Of
= it Order:
r' l61jCrr r'11LH
--

�910.00
/
--
_---� -
-_ 91 2 .00
---
/�
-_
/
_

�905.00
-.--

P1

�900.00
892 .75 �895.00
Stop 891 .50
."".-
/ -··-/�890.00

�880.00
�875.00

1 62
W here is pivot [P3] most likely to occu r? Price tests the Median Line roughly 80 percent of the time. Price is likely to test
the Median Line when forming potential pivot [P3] .

Price continues to move higher i n a n orderly fash ion . After a few more bars, I decide it's time to move m y stops closer.
The low of the day is at 892.75. This also happens to be the h igh of the gap. If price is able to make it back i nto that gap
now, I want to get out to preserve my profits, because price has come very far, very fast. I call my broker and cancel and
replace my stop-loss sell order, moving it from 869.25 to 89 1 .50.

Now I want to point out a simple thing that most people never take the time to do: It's very easy to simply measure the
height of the Median Line and then project where it will be a few bars later. You can easily tel l how much it moves up, for
example, for each 39-minute bar. Then use that knowledge of where the Median Line "will be" to help in you r thought
process of anticipating what might happen as time and price u nfolds.

In this example, I simply d raw a vertical l ine u p to the Med ian Line and I can see it would be at 9 1 3.00 at the next bar,
which will be the opening bar of the next day. Since prices were strong all day and closed near their high, I am anticipating
there may be a push h igher at the open ing. If prices approach the Med ian Line, I 'd l ike to lock in profits at an area where
prices are likely to form potential pivot [P3] . On the opening bar tomorrow, the Median Line comes in at 9 1 3 . 00, so I enter
a l imit order to sell at 9 1 2.00.

1 63
 Potential

Median Line
91 6 .75 ------=:;..
Profn Order:
,..lU-i 91 3 .25
[91 6 .75-3 .50)

ML to MLH
V\'ld1r, = 35 F1s
1 0 % = 3 .5 F1s .

Long: 873

1 64
Prices made a wide bar lower on the opening, heading lower to try to test the open gap, but not getting there. The low of
the day, 894 .50, was made d u ring the first bar and after that low was tested again a few bars later, prices began a steady
cl imb h igher, closing near the high of the day.

Our stop loss sell order at 89 1 . 50 wasn't hit. And our profit order to sell at 9 1 2.00 wasn't hit either. We're still long at
873.00.

Once again I anticipate that price will make an opening move higher. It tested downside support yesterday morning and
then closed strong. If price approaches the Median Line tomorrow, I want to take my profit, because I am anticipating that
price may tu rn at or near the Median Line and form a potential pivot [P3] .

Yesterday, I put m y profit order in one point below the Median Line. That was a "qu ick a n d dirty" method and let m e show
you a more fine tu ned method for profit orders. It's simple to use and it does a good job of catching these tests of the
Median Line area without missing too much of the potential profits.

First, I d raw a vertical line connecting the Median Line with the MLH. Then I measure where price meets the Median Line
and M L H . The difference between these two is the height of the Med ian Line channel . I then simply take the height of the
Median Line channel and multiply it by 1 0 percent to get my adjustment factor. In this case, the Med ian Line channel is
35 points hig h . Ten percent of the height is 3.5 handles.

On the first bar tomorrow, price would meet the Median Line at 9 1 7.00, so the adjusted profit level is 9 1 6.75 less the 1 0
percent adjustment of 3 . 5 points, which gives me a new profit order of 9 1 3.25. I call my broker and cancel and replace my
limit order to sell at 9 1 2.00 and move it to 9 1 3.25. At the same time, I reconfirm that he is still working my stop loss order
to sell at 89 1 . 50 .

Prices left a double bottom yesterday a t 894 . 50. Could I have moved m y stops up even closer after today's action? I
suppose, but I want to give this trade every opportu nity to trade "by the cou nt" as we anticipate the potential pivots.

1 65
 �925.00

Median L·.I:...:.ne::..:.:_----=:,..
�920.00
91 6 .75
�915.00
Filled: 91 6: 00
�910.00

P1 ;"'905.00

;"'900.00

�890.00

�885.00

�880.00

�875.00

1 66
Prices gap open higher, testing the Median Line during the opening bar. We were worki ng a profit order to sell at 9 1 3.25
limit , which was filled on the open at 9 1 6.00. We are now flat and the trade netted 43 S&P points before brokerage
expenses. I cancel the stop loss order at 89 1 .50.

I can't stress this enough: Price has now reached the Median Line, an area where a turn is likely and a potential
pivot [P3] may form. I was trying to anticipate this area so that I could be flat to take advantage of any pullback that may
occurr as price forms potential pivot [P4] . Does anticipation come at a price? It's always possible price wil l ru n through the
Median Line and I 'll miss more of th is move. You have to choose a set of strategies and tactics and stick with them . This
is a set of trades we are making based on using potential cou nts and Median Lines in their most basic form.

1 67
 �920.00

�915.00
M.�lor IALH
�910.00

;"'905.00

�900.00

...<::.....----.Low at 894 .50---- � 895.00

Dbl Bottom _ �
.--.

�890.00

�885.00

�880.00

�875.00

1 68
Now that we are flat, my mind tu rns to the next potential pivot [P4] . If price does indeed make a pivot here at or near the
Med ian Line, where is the most l ikely place for the next pivot [P4] to form?

I n my view, we have two potential areas: 1 ) a test of the open gap at 892 .75 or 2 ) a test of the lower up sloping MLH. I n all
honesty, u ntil I know where price has formed pivot [P3] , I wou ld assign each area about equal probailities as the most
likely place for price to form potential pivot [P4] .

Let's see how price trades for a few bars after the first bar test of the Median Line.

1 69
 �925.00

�920.00

�915.00

Down to P4? �910.00

P1 �905.00

�900.00
Obi Bottom
Low at 894.50
�895.00

�890.00
�885.00

�880.00

�875.00

1 70
It's clear after a few more bars form that we exited very close to the top, at the test of the Median Line, and that potential
pivot [P3] has likely formed now.

W here is potential pivot [P4] l ikely to form? I see about equal probabilities that it will form at either the test of the open gap
at 892 .75 or at the lower u p sloping M L H .

I look closely a t the bar structu re surrounding the g a p area su pport. There is support at the dou ble bottoms in place at
894 . 50 , as wel l as at the high of the gap, at 892 .75, which has not been tested yet. I do expect that this open gap will be
tested . I n my experience, open gaps like this are "attractors," meaning they often d raw price action to themselves at least
once. The question is whether prices wil l attempt to form a potential pivot [P4] at or near the open gap or whether they wil l
continue down to a full test of the u p sloping M L H .

I n the end , I decide that I wil l attempt a long position i f price approaches the support formed b y the double bottoms at
894.50 and the h igh of the open gap at 892.75. This is a good area for prices to pause and attempt to form a potential
pivot [P4] . And if this su pport doesn't hold , I'll be stopped out of my position and attempt to get long again if price
approaches the test of the u p sloping MLH.

I enter orders to go long at 895.25, th ree ticks above the double bottoms at 894 .50 and 2% points above the high of the
open gap.

For my stop loss, I choose to use a bit wider stop because I do expect prices will l ikely test the top of the open gap-as I
said, I find these open gaps act as price attractors . I decide to put my stop 1 % points below the 892. 75 top of the open
gap. I cal l my broker and enter an initial stop loss order at 891 .25. Now we'll have to see what price brings us tomorrow.

1 71
 �925.00
I
t.I.. �920.00

�915.00
Up to P5?

�910.00

�905.00

�900.00

�895.00

�890.00

�885.00

�880.00

�875.00

1 72
Prices gap lower on the open the next morning, testing the high of the open gap. We were filled on our 895.25 limit buy
order at 894 .75 at the opening. I dou ble-checked with my broker when he gave me the fill on our buy order that our initial
stop loss order at 891 .25 was in the market.

Prices touched the high of the open gap area at 892 .75 twice during the first two bars and then rallied to fill the morn ing
gap, getting as h igh as 906 before trad ing back lower to again test the 892 .75 su pport. When the support held for a third
time, prices ral lied into the close.

This is an area that now shows great potential for forming a pivot [P4] . I like to see areas of potential su pport or resistance
be "worked over" or tested a handful of times. To me, it gave more credence to this support area when prices came back
down in the afternoon and tried the su pport one more time.

Now let's see if prices can rally to the likely area for a potential pivot [P5] or if the support will be broken in the morning.

1 73
 �930.00

+---- 924 .00

Profrt Ordder:
�925.00
[927 .50-3 .50]
�920.00
t'ill to t'.,llH
1,o'\)1cltt-1 35 PIs
�915.00
=

1 0 .::.�:. = 3 .5 PIs .

�910.00

�ew
_..:..t'::
--Ifft--Ill--_I--
:-. stop �905.00
at 904 .25

�900.00

�895.00
,Gap Low: 892.75 ______�.L-
�890.00

� �885.00

�880.00

1 74
The next morning, prices open lower but then rally hard the rest of the day, making a new high for this move and closing
near the high of the day. Obviously, pivot [P4] has now been confirmed and this is a strong move to potential pivot [P5] .

Where i s potential pivot [P5] l ikely to form? Prices are most likely to form a potential pivot at or near the Median
Line. I d raw i n the vertical measu ring l ine and see that prices would meet the Median Line at 927 . 50 in the morning.
Prices closed near their high, so I am anticipating there may be some follow through in the morning. If price approaches
the Median Line, I want to take my profit, because this is the most l ikely area for potential pivot [P5] to form. I calculate
that prices will be within 90 percent of the Med ian Line at 924.00 and that's where I enter my limit order to take profit on
my 894 .75 long position.

Should I move my stop loss orders higher? There is a lot of money on the table now, and prices have made a new high. If
prices fail to make it to the M edian Line, we may miss exiting on this rally at what may well turn out to be pivot [P5] .

I look to the left for price action that may act a s support if prices fail from the cu rrent levels before o u r profit order is h it.
The most obvious area is the prior minor swing high, which I marked with three red dots. These hig hs coi ncide nicely with
the spike low of yesterday's second to the last bar. These highs and lows range between 905.00 and 907.25. I su btract
three ticks, which gives me a new stop loss order of 904.25.

I call my broker and enter my limit order to sell out the long position at 924 .00 and then I cancel my 89 1 .25 stop loss order
and replace it with a new stop loss order at 904.25.

Let's see if prices give us follow th rough to the u pside in the morning.

1 75
 :-!J::IU.UU
Median line:
927 .50·�--30-
Profit Order:
1----- at 924.00
�925.00
Filled: 924:00
�920.00

�915.00

�910.00

-UJf---I4-----r
ca
�ncelied
Stop 904 .25 �905.00

�900.00

�895.00
Gap Low: 892 .75
�890.00

�885.00

�880.00

1 76
Prices trade h igher right from the opening and our profit order at 924 . 00 is qu ickly filled . I cal l my broker to confirm the fill
and then cancel the stop loss order at 904.25. Price is now at or near the Med ian Line and in an area where we anticipate
the formation of a potential pivot [P5] .

This trade netted 29.25 S&P points in a very short time.

Let's see what price does now that it is at the vicinity of the Med ian Line.

1 77
PO-P4 Line

1 78
Prices climbed a bit hig her but stayed within touch of the Med ian Line for several days before finally turning down . Once
again, prices made their turn at or near the Median Line.

We carefu lly watched the u nfolding of pivots [PO] to [P5] . We used this very basic counting method as an aid to locating
likely areas where price might form pivots. We traded from the long side within an up sloping Med ian Line, making two
trades. The first trade netted us 43 S&P points and the second trade netted us 29.25 S&P points. We limited our
downside risk as best we cou ld by using logical stops placed beneath where we thought price action might support price.
We tried to maximize our profits by anticipating where prices might tu rn and then entering profit orders slightly below
those levels. And we further limited our risk by choosing when to be in a position and when to be flat, waiting for good
trade locations to present themselves.

At this point, price has made five clear pivots to the u pside. That does not mean that this u p move is over, but it means we
should be watching for any sign that the u p move has ended and a new move to the down side has begun.

Notice that I added the PO-P4 Line once pivot [P5] was confirmed . The PO-P4 Line is another sort of "trend test barrier"
that we can use when trying to anticipate where prices are headed . Once we see five clear pivots, a clear move th rough
the PO-P4 Line is further confirmation that the cu rrent move may have ended . One note of caution : Like Med ian Lines and
MLHs and Sliding Parallels, prices may test the PO-P4 Line and then change d i rection at or near it. A single brief
penetration should give you caution , but if prices then return to prior trend , you can usually treat this as a test of support
[or resistance] that held .

One note on the style of trad ing I employed in this example: I generally use u p sloping lines as support and as measuring
objectives for u pside potential pivot areas [logical profit areas] . I tend to in itiate long positions as prices test su pport at up
sloping Med ian Lines, MLHs and Slid ing Parallels. If I sell at or near up sloping Med ian Lines, MLHs or Sliding Parallels, it
is generally to take profits i n areas where potential pivots are likely to form [logical profit areas] .

S imilarly, I use down sloping l ines as resistance and as measuring objectives for downside potential pivot areas [logical
profit areas] . I tend to initiate short positions as prices test resistance at down sloping Med ian Lines, MLHs and Sliding
Parallels. If I buy at or near down sloping Median Lines, MLHs or Sliding Parallels, it is generally to take profits in areas
where potential pivots are likely to form [logical profit areas] .

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 Some Fina l Thoughts

Median Lines are very powerfu l tools. At times, you draw them and the market appears to march
magically up to the Median Line, then tu rn on a dime and march back down to the Lower M L H , then turn
back u p as expected-I n effect, turning where the l i ne says it wil l tu rn , time after time. And of cou rse,
that's a good thing . It means you are on you r way to mastering these very powerful tools.

But a good friend and g reat trader, Joe DiNapol i , always spends a g reat deal of time in his seminars
pointi ng out the i mportance of money management in any trading program . I cou ldn't agree more . Don't
let the simplicity of these powerful tools l u l l you into thinking the market won't su rprise you !

NEVER trade without a plan and don't trade without protective stops! If you don't ful ly u nderstand
how to use stop orders , don't trade u ntil you have thoroughly learned how to use them to protect you r
trad ing capital. Know how much you are wil l ing to risk on each trade and stick to you r plan. If you lose all
of you r trad ing capital, you won't be able to trade again . And never risk capital you can't afford to lose.

The best way to increase you r abil ities with these tools is to d raw and d raw and then d raw some more. I
stil l u pdate a set of charts by hand on various markets each night! I n the markets I trade regularly, I keep
as many as six timeframes u pdated in real-ti me [for example, in the S&P futu res, I keep u pdated 1 5, 45,
90 and 405 minute charts, plus all-session daily, weekly and monthly charts] .

We have a g reat free foru m , the Media n Li ne foru m , with over a thousand members. Everyone is
wel come and the foru m is open to discuss all trading topics, but obviously, Median Li nes are tal ked
about all day, every day. D rop by the web page at: www . median l i ne .com and fi nd out how easy it is to
register for the foru m .

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